Having to wait over a year for a new model of iPhone is sending the rumour mill into delirium. Yesterday saw not one, but two analysts stick their heads above the parapet and oust the idea that Apple will later this year release two models of iPhone.
It all started with a report from Deutsche Bank analyst Chris Whitmore who declared “Its time for a mid-range iPhone” and pointed towards Apple releasing a lower-end unlocked iPhone priced between $300 and $500 and aimed at the prepaid market, so in effect contract free. Whitmore went on to discuss the merits of releasing a pre-paid only iPhone, he notes that Apple had sold around 87 million iPhone units in the past 2 years “which suggests it has reached only 6% penetration of its current addressable subscribers,” adding, “we believe Apple has room to run both in terms of greater market penetration as well as incremental carrier additions going forward.”
Whitmore then went onto to discuss how the lower-end iPhone, named the iPhone 4S would be priced at $349 in his estimations. For the record World of Apple has it from very good sources that the name iPhone 4S is a complete falsehood.
What Whitmore fails to effectively do in his report to analysts is outline how Apple would trim such massive amounts off the price of the iPhone without “negatively impacting profitability”.
The second source of this rumour is Morgan Stanley’s Katy Huberty. Katy never actually explicitly pointed towards two new iPhones but in her report in relation to recent meetings with unnamed individuals the analyst did say Apple is forecasting a large iPhone unit increase in 2012 “on the back of new products and potentially lower price points.”
So what merits does a second, lower cost iPhone have for Apple? The answer is obvious, it has every benefit but just because that is the case it doesn’t mean Apple is willing or preparing to do it. Take for example the netbook market; it’s a market that Apple has been vehemently opposed to but eventually entered with the MacBook Air. The one difference between the MacBook Air and the plethora of netbooks is the quality and the price, yet Apple’s MacBook Air is selling in extreme volumes.
We also have some insight to how Apple feels about the prepaid phone market, as noted by Jim Dalyrmple over at The Loop Apple’s COO Tim Cook earlier this year told Bernstein’s Toni Sacconaghi that the company “understood [that] price is big factor in the prepaid market” but Apple was not “ceding any market.”
What Tim Cook means by that comment is that until Apple feels ready and confident to enter the lower end market then it won’t do so. Apple will want quality hardware, the same software and apps and yet still want to keep the massive margins the iPhone currently offers.
Yet Apple already plays a two iPhone game in some countries, in the US whilst Apple sells the iPhone 4 it also allows AT&T to sell the old 3GS for a subsidised rate of $49. Last year the 16GB iPhone 4 was estimated by iSuppli to cost $188 for Apple to produce, naturally this figure discounts shipping, packaging, advertising and other overheads and let us not forget Apple’s penchant for 60% margins on products. If Apple really wanted to enter the prepaid market, a 4 or 8GB iPhone 4 would seemingly be the best way for the company to do it.
With rumours suggesting that the next iPhone to be similar in appearance to the current iPhone 4, then the two models could share 70% of their components (display, touch panel, antenna, sensors, case, etc) whilst the lower-end iPhone 4 would be of lower capacity and still keep Apple’s A4 chip whilst the iPhone 5 packs an A5 and 32 and 64GB capacity.